(Recasts with new prices, comments.)
By Jason Hovet and Sandor Peto
BUDAPEST/PRAGUE, Jan 21 (Reuters) - Central European
currencies inched higher on Wednesday, but markets remained
jittery and dealers said more losses were possible as the
outlook for the region's economies darkens.
The Polish zloty <EURPLN=> firmed 0.32 percent to 4.326 to
the euro by 1444 GMT, but was still close to more than 4-year
lows. The Czech crown<EURCZK=> gained 0.51 percent to 27.599,
while Romania's leu firmed by 0.23 percent to 4.304.
Hungary's forint <EURHUF=> edged up 0.52 percent to 283.27,
back from a record low above 288 hit on Tuesday with some
optimism in reports of inflows into its government bond market,
the main road for foreign investment cash in the last decade.
But dealers said odds are on currencies across the region
adding to a six-month slide as a series of officials said more
cuts in growth forecasts were likely as a global downturn hits
the previously fast-growing region.
"This is a small correction which does not break the
trend... I don't know why these markets should become more
optimistic all of a sudden," one Budapest-based dealer said.
The government of Germany, a key market of Central Europe's
export-reliant states, said its economy would contract by 2.5
percent this year[].
Central bankers from the Czech Republic, Poland and Romania
said they would be forced to lower growth forecasts, while
Hungary's central bank chief Andras Simor said its contraction
would be worse than a previously forecast 1.7 percent.
Recent data has pointed to a deeper slowdown in central
Europe's economies as they struggle with falling demand for
goods from a weakening euro zone, bolstering the case for deep
monetary policy easing, which has hung on currencies.
Simor said the economic and inflation outlook would allow
further monetary easing after the bank delivered its fourth
half-point rate cut since November on Monday. []
Hungarian government bond yields fell by around 30 basis
points, mainly in longer than two-year maturities, due to
increased buying by foreign investors.
"There are expectations that there will be budget
restrictions, inflation will fall and the central bank will cut
rates," one trader said. "But I fear that this is speculative
inflow which can be reversed on the first negative sign."
Dealers said the forint's rebound may end once some long
positions accumulate, and the Czech crown also remains fragile
and may test 28 against the euro, its weakest level since August
2007, as exporters close hedging positions built one year ago.
"Deteriorating economic fundamentals, as well as worsening
sentiment on the CEE region, support our view that this level
(28) could be easily broken soon," analysts at ING bank wrote on
Wednesday.
Romania's leu <EURRON=> tracked regional moves on Wednesday
and the central bank was on the sidelines a day after dealers
said it had intervened covertly to support the currency.
Dealers said comments by deputy central bank governor
Cristian Popa that monetary policy should reflect continued
preoccupation with inflation and that Romania's economy was
unlikely to contract [] did not affect the currency.
But the market perceived the comments as an important
message that has cast some doubts over expectations that the
bank, which has stayed off the regional rate easing trend, will
cut rates in February.
"Maybe the comments suggest (a postponement of a rate cut),"
said Nicolaie Alexandru-Chidesciuc, senior analyst at ING Bank
in Bucharest. "But it is also an attempt to calm the situation
the leu is going through."
Popa said that leu's weakness was rather caused by regional
factors than by local economic problems. [].
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 27.599 27.74 +0.51% -3.07%
Polish zloty <EURPLN=> 4.326 4.34 +0.32% -4.88%
Hungarian forint <EURHUF=> 283.27 284.75 +0.52% -6.96%
Croatian kuna <EURHRK=> 7.38 7.405 +0.34% -0.2%
Romanian leu <EURRON=> 4.304 4.314 +0.23% -6.73%
Serbian dinar <EURRSD=> 93.2 94.328 +1.21% -3.99%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +22 basis points to 118bps over bmk*
4-yr T-bond CZ4YT=RR -15 basis points to +88bps over bmk*
8-yr T-bond CZ8YT=RR -6 basis points to +94bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +8 basis points to +748bps over bmk*
5-yr T-bond HU5YT=RR +13 basis points to +697bps over bmk*
10-yr T-bond HU10YT=RR +17 basis points to +525bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1544 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Sandor Peto/Jason
Hovet, editing by Victoria Main)
